Has the
recent stock market downturn and credit crunch (sub-prime fiasco) stopped or at
least postponed the mergers and acquisitions (M&A) in the BI, CPM and DW
markets? Let’s break down M&A activity into two categories: private equity
or LBOs (leveraged buyouts) and strategic acquisitions.
The private
equity buyouts started looking like NASDAQ 5000 redux. The deals kept getting bigger and the
business logic for the deals kept getting thinner. As long as cheap debt (VERY
cheap debt) was available, someone could make money out of taking a very sound
business that was generating a lot of cash, i.e. successful software firm, and
piling on the debt.
I was
raised as a New
England fiscally conservative person (cheap Yankee), so even though I understood
leverage I kind of cringed when I saw it applied so liberally.
As we have
seen recently, and in the NASDAQ crash several years ago, leverage is great
when it works and a disaster when it doesn’t. Something about living by the
sword and dying by the sword comes to mind.
The private
equity deals are definitely slowed down, if not forestalled for a while. And
when they do come back they should be more reasonable for the foreseeable
future. (Until the next round of excess.)
The good
news/bad news for the BI/CPM/DW industry is that most of the potential deals
are not the mega-deals that helped crash this party, but are much more
manageable market-cap size to complete.
In
addition, our industry’s software companies, in general, have little debt, great
cash flows and solid revenue and earnings growth. That means the math would
still work for one or more of our firms to be bought by private equity.
I think
there are a few candidates where not only the financial math would work but
being private would empower them to attempt a transition that they might need.
A BI or CPM firm might be able to remake itself while private, where if it was
public quarterly scrutiny might tie its hands.
The software
titans – Oracle, SAP, Microsoft, IBM and maybe someday HP – all have been buying
software firms to build out their capabilities. It may be necessary for the
neo-titans or wannabes to go private or off the public financial radar to
radically revamp their product and services line-up to compete.
A
transition to SaaS (software as a service), SOA (service-oriented architecture)
or maybe
OSS (open source software) might be necessary but would “destroy” profits
during the transition. Being private might be the only way that management
could enact those changes.
I am not
suggesting that this scenario will happen, but some software companies may
become irrelevant or be destined for the software graveyard (bought by a Titan
and turned into OSS?!) unless some changes are made.
Private
equity may be slowed down but there is a lot of money to be made in BI/CPM/DW
software. If there is a will they will be a way.
Am I all wet?
Or maybe you have some software firms as private equity candidates in mind?
Feedback welcomed.
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